Much of the recent discourse around the office sector has centered around looming threats and the innovation required to meet the changing times. As hybrid work appears to be the consensus going forward, under-utilization of office space will have significant repercussions for companies, cities, and the economy. Rising office vacancy rates are threatening valuations and could lead to massive write-downs on the horizon. Class B and C properties are likely to fare the worst in this scenario, which is why they have been the main targets for repurposing. Office retrofitting is a serious consideration in most major markets. The conversion of office to residential space is a preferred option, given the housing challenges faced by most municipalities.
For Calgary, there is a uniqueness to the local situation. In many ways, the local market has already begun to adjust to the shocks impacting the office sector. Vacancy has declined, absorption has been on a positive trend, and tenants are flocking to amenity-rich A and AA class properties. Regarding office conversions, Calgary’s program is already several steps ahead of many of its peers.
Market stabilization continues in Q2
Calgary’s office market had a moderate quarter relative to this time last year. Downtown experienced 72,000 square feet (sf) of negative absorption, bringing year-to-date absorption to effectively nil. As a result, the vacancy rate remained flat at 27%.
The Beltline continues to struggle to gather momentum, with -5,000 sf of absorption and a slight increase in vacancy to 26%.
The suburban market saw negative absorption in the south and positive absorption in the north for a net gain of 21,000 sf. The removal of inventory due to several recent sales of repurposed buildings contributed to a drop in vacancy in the suburban north.
Our point of view.
Regarding these greater existential challenges, there remains a pervasive sense of optimism in Calgary’s office market. Much of this may have to do with the fact that the office sector here has been dealing with these issues for a longer time than most. It may also have to do with the fact that the local economy is on the upswing, powered by growing employment and an immigration influx. Calgary’s proactive downtown conversion program is being closely watched by many and hybrid work isn’t anticipated to have the same drastic impact here as some other larger cities.
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